Causes of bank failure in the post democratic South Africa.

Abstract

This dissertation explores and explains the reason why banks generally fail and more specifically why banks have failed since South Africa realized democracy in 1994. Bank failures are a global phenomenon and come at a high cost to the depositors , the fiscus and can lead to economic instability should the failure be systematic. There are several causes of bank failures and theoretically, these include credit risk, market risk, liquidity risk, capital requirements , bank regulation, inefficient management and external economic factors. The banks that failed during the period commencing from 1994 to date include Prima Bank, Sechold Bank, African Bank, Community Bank, Islamic Bank, FBC Fidelity Bank, New Republic Bank, Regal Treasury , Saambou and BoE. Detailed analysis of the nine banks referred to above is done in Chapter Four wherein, in respect to each bank, the background of the institution , the analysis of the financial statement, where available or the banking returns lodged with the South African Reserve Bank, reasons for the failure of the bank as well as the resultant outcome of the failure has been examined. The causes of failure, the symptoms of failure and the recommendations for prevention of failure are finally considered and discussed in Chapter Five.